The bill provides that the debt discharge amount thus
excluded from income is applied to reduce the
taxpayer's net operating losses and certain other tax
attributes * * *. [S. Rept. 96-1035 (1980), 1980-2 C.B.
620, 624.]
See also H. Rept. 96-833, 12 (1980).
Moreover, section 108(d)(8) was enacted at the same time as
the reduction provisions of section 108(b)(1) and (2). The same
Congress that wanted to reduce tax attributes as a price for tax-
free debt discharge was quite aware of who would be doing the
reducing--the estate, not the individual.
Finally, if petitioners were correct, the debtor-taxpayer
would receive a windfall, a result which simply does not fit the
statutory scheme. As the Court of Appeals for the Sixth Circuit
has stated in Firsdon v. United States, 95 F.3d 444, 447 (6th
Cir. 1996) (a case in which the Government prevailed on the issue
involved herein):
Section 108(b) of the I.R.C. provides that any
amount excluded from gross income under � 108(a) "shall
be applied to reduce the tax attributes of the
taxpayer," including NOLs. The obvious reason for this
provision is to prevent bankrupt debtors from procuring
a double benefit from the tax laws--a tax-free
cancellation of debt plus favorable tax attributes from
the bankrupt estate. * * *
Petitioners do not argue that any of the 1990 NOL would
remain after discharge, and in fact appear to concede on brief
that the NOL ultimately would have been eliminated by operation
of section 108(b)(2)(A) and (3). This concession comports with
the reality of the circumstances. The NOL in question in this
case was in the amount of $136,773. Mr. Kahle appears to have
had liabilities of over $84 million. It is true that Mr. Kahle
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